Rebuilding Family Wealth

Since 2008 some of those that were hit hard by the financial crisis have repaired their credit and are ready to take on homeownership again to begin rebuilding their family wealth.

Many of you are understandably trepidatious about tying up your family’s money and time in real estate again. However, homeownership is still the best path to building personal wealth. The trick now is using the lessons of the past to avoid another disaster, and to remember a few key points:

Buying a home is often the biggest financial decision that any family will make.

The average net worth of a homeowner is 45x greater than that of a renter.

So, you are thinking about buying a second home? Excellent. You have come to the right place then because below, I’ve got 5 of the absolute greatest tips and strategies to help you out on that front. Get ready to have your mind blown.

I wanted to hand out some quick tips for selling your home here in Tahoe.Good morning everybody, last time we spoke we had snow falling down and more on the way. That did not end up being the case, however, and we have late Spring-like conditions out there now. Everything else I said about it being a seller’s market is still true. This is a fantastic time to be selling your Tahoe home if that is your intention. In fact while trying to record this I got three calls between 7:30 and 8:30 alone on a listing of mine.

So on the topic of selling I wanted to discuss briefly the Tahoe market and how things are different here. In many of the “hot” markets sellers will often have inspections, clearances, and permitting background work done before being put on the market. Here in the Lake Tahoe real estate market, that is done very rarely. I strongly believe that any seller’s who do that up here have a competitive edge and may be able to get sold sooner and potentially for more money than other properties which haven’t done so.

Blogging for Tahoe Regional Young Professionals

As you may or may not know I am a member of a local organization called TRYP. Not only am I a member but I am also on the marketing committee, and just recently took on the role of being in charge of their blog! So now I will have some accountability with blogging and the plan is to be getting some more writing done on here as well.

I wrote a piece for them about staying motivated during the holiday season and I think it works for my main blog too. If you want to see it on TRYP’s site you can find it here: TRYP Staying Motivated During the Holidays. Otherwise it is below:

Staying Motivated During the Holidays

Wow. December has been busy! There have been Christmas parties galore, cookie making, shopping, threats from the “Storm of the Decade”, cookie eating, decorating, and more cookie eating. None of this has anything to do with work, but for me this is somehow an incredibly productive time of year, even though my work and my career aren’t my main focus.

I wish I was eating one right now…

Holidays are the time of year we like to spend with family, or to simply not be at work anymore. Many of us are burnt out. I understand, and feel very much the same way. There are some ways I have found to remain successful though:

Take some time off, get away, and get yourself into a place where you are relaxed and able to make sound decisions. Often our family and business life can suffer when we are stressed and making hasty choices. I am lucky enough to be able to work from home often. If it is at all possible I highly recommend it, especially at this time of year.

Once you have relaxed and shed the daily stress, it is time to evaluate. Look at your workload (without stressing!) and prioritize it. What has to be done by when? Once you’ve finished doing that for your job, do one for your personal life as well.

Now that you have a prioritized list you can address them in the correct order and stay focused on them until they are done. Make a schedule that is realistic and leaves you plenty of time to spend with family or doing what you WANT to do at this time of year. Try not to multitask. Multitasking kills your creativity, causes stress, and in the long run actually lowers your productivity. Get your work done, get some personal goals met, and stick to that schedule.

Here’s something you may not know: I love cookies. Chances are your coworkers do too. Sharing food with workmates is a great way to take a break, relieve holiday anxiety, and create trust. Recent studies have suggested that 57% of employees said that food-based perks make them feel more valued and appreciated. 50% said that food-perks would make them feel more satisfied with their employers. Never underestimate the power of a cookie again.

I wish I was also eating these right now…

Before you know it you’ll have crossed off most of your list. You’ll be a bit more relaxed and you’ll have potentially cultivated better work relationships. Now when it is time to actually get back to the grind after the holidays you will already be set up for success. In fact, now would probably be a good idea to start thinking about those New Year’s Resolutions…

What Is It?

As the name suggests, long-term real estate rental investment is the tool in which you purchase properties (hopefully below market value) with some money down and then rent them out with some profit. The profit will vary by property, but over time you pay down your mortgage and eventually when the property is paid off you receive the full rental income. With multiple properties and with enough time, the income can become quite significant.

Why Long-Term Real Estate Investment?

In my first guide (click here if you missed it) I went over the very basic first questions you should be asking yourself when considering real estate investment as a potential source of income or as part of your retirement portfolio. So why long-term real estate? Very simply because passive income is key to financial success and independence. Passive income is money that you earn even while sleeping. While there is some work to be done before and between tenants, in an effective investment this should be minimal.

Currently rates in our market are still incredibly low and it is so easy for homeowners to buy or refinance into rates that will keep payments low enough for rental income to more than cover the mortgage. This is beginning to become so prevalent in fact that CNN Money worries about the low real estate inventory and thus limited sales growth. Rental rates are up, property prices are down but have plateaued and are beginning to appreciate. There are deals to be had.

Buying Below Market Value

Determining Market value
Ideally you want to buy homes at least 10% below market value. Obviously to purchase below market value you need to know what the actual value is. For myself, I am a real estate agent so it is easy for me to look up comparable properties and get a good estimate of the actual value of a home. Zillow does provide it’s ‘Zestimate’, but just yesterday I was making up a CMA (comparative market analysis) and Zillow’s values were below mine by just under $50,000! If this was a property I was looking to purchase, I wouldn’t make a move on it based on Zillow’s estimates. I highly recommend finding an agent to assist you in your investing.

Real Estate Owned
Purchasing REOs(Real Estate Owned) is another good way to purchase homes below market value. REOs are properties that have been foreclosed on and are being sold by the bank. REOs are nearly always listed on the MLS (multiple listing service) by an REO agent. Every bank deals with REOs differently, and some banks are willing to negotiate while others are adamant about pricing. Regardless, purchasing REO houses can be a great way of buying below market value.

Short Sales
Short sales are properties still owned by a private seller, but they are attempting to sell a property for less than they owe the bank. This happens frequently in areas where there was a huge rise and fall in home values. To sell the home the bank has to approve the offers after the seller himself has approved of it. Typically these transactions take anywhere from six months to a year. When short sale opportunities come available in the Tahoe market, they are snatched up within days. The last one that I saw here sold within 24 hours.

HUD is a pain, but worth it.

HUD Homes
HUD homes are similar to REOs in that they are homes that have been foreclosed upon. In this case however, the FHA insured the mortgages and thus the “bank” in this case is the government. HUD homes have an online bidding system found here: . All bids have to be entered by a licensed real estate agent, and all bids are sealed. No potential buyers can see another’s bid. Purchasing HUD homes can be difficult for investors due to some of the owner occupied bidding periods. There are also additional costs associated with purchasing HUD properties that aren’t typical of other sales. These include things like title insurance, all utilities for inspections, all inspections, etc. Despite this, many investors can and have purchased homes well below market value from HUD.

Off Market
Another source for purchasing is off market properties. Also sometimes called FSBOs (For Sale By Owner), these properties are not on the MLS and are sometimes not even advertised as for sale. These can be found through word of mouth or advertising by the investor. You know those signs that say things like: ‘We buy houses ALL CASH’? These are placed by investors who are purchasing homes below market value, or are speculating on an increase in the market.

Getting a Return On Investment

Think About Future Resale Value
You know the adage, “location, location, location” and it should not be ignored. Renters care about where they live as well, and it is always good to have an exit strategy in mind. If for some reason you do have to sell your rental in the future, make sure it is in an area that WILL appreciate. Equity growth is still important in long-term investments. Not only does it provide you with a way out in the future, it will also help to drive rental prices up over time. Know your areas and plan accordingly. Houses in the Sierra Tract are generally cheaper and can be rented out quickly and easily, but equity growth in that part of town is much lower than say the Al Tahoe area.

Maintenance and Time
Look for newer or low-maintenance properties that will stand the test of time against renters. You don’t want to have to deal with major repairs if you can avoid it, and even some of the best renters are less careful with a home that they rent than they would be with one they owned. Many investors choose to purchase homes that are 20 years old and newer for those reasons. While that isn’t always an option, you should absolutely make yourself aware of any issues in the era of house you are purchasing.

You also need to consider how much time you can devote to oversight and upkeep of your investment. Living nearby can alleviate many issues, and potentially save you thousands in property management fees. If you can’t repair or hire occasional professionals to do jobs, or can’t deal with collecting rent and maintaining your books due to time or stress, then you likely need to hire a property management company. Make sure that what they save you in time makes or saves you that much money in another area.

Income and Expenses
Be realistic about rental prices for your property. Speculation and “holding out” can cost you thousands of dollars and turn an investment into a huge burden. Being able to charge more than your monthly mortgage will require a combination of purchase price, down payment, location, and amenities. An old real estate maxim states that a rental property yielding one percent of the sales price per month is a great deal. An easy example is if your investment cost $100,000 then you should get $1,000 per month in rent. This would provide about 12 percent annual yield. This is not easy to come by, especially in the Tahoe area itself. It may in fact not even make sense based on how much down you put and how much you are actually having to pay monthly. Figure out your cash flow and what your expected monthly and yearly returns are. If you are making money consider putting that into the mortgage to pay it off early. If you can make a little bit on multiple investments consider doing the snowball payoff method. Pay down the lowest one as quickly as possible. The sooner those mortgages are paid off, the sooner you can begin actually enjoying the returns.

A Huge Topic

When I first had the idea to write about the different investment types I didn’t really consider the depth of the topics. We are at just about 1500 words and I don’t even think we’ve scratched the surface of this topic. We’ve simply looked at it… and not even in its entirety. This series I feel is going to be much longer than I had originally anticipated, but I intend on making each post worthwhile and approachable. As always I am happy to answer questions and discuss these topics much more in-depth with anyone. Remember: Ask questions, become informed.

About Me

Hello there! My name is Travis Rougier (roo-zhay). I'm a father of three girls, a Lake Tahoe Realtor, modern day Renaissance man, tech guru, wannabe foodie, entrepreneur, and a heliophile. All around, a pretty great guy. Find out more...

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Lake Tahoe Homes

Real estate sales and purchasing for investors, vacationers, vacation renters, and first-time home buyers. Lake Tahoe real estate made as easy, simple and rewarding as it can be. Travis Rougier can help you with your Lake Tahoe homes for sale, and any Lake Tahoe real estate needs you may have.